IEOs are initial exchange offerings, and it may well be the new ICOs — but what makes this method of fundraising different?
Initial coin offerings
have lost their appeal in recent years — instead, many crypto projects have started raising funds using an initial exchange offering
Known as an IEO for short, this is where a cryptocurrency exchange
oversees the token sale. The benefits are clear: blockchain projects go through a comprehensive vetting process where their white paper
is scrutinized, and their crowdfunding drive will also get publicity.
Many investors tend to find IEO platforms more appealing because there's a greater level of due diligence than what's seen with an ICO.
For example, Binance Launchpad is one of the trading platforms that aims to deliver innovation and bring IEOs to the crypto market. The platform has helped more than a dozen blockchain projects raise capital since launch.
How the Verification Process for IEOs Works
To reduce the risk of scams, exchange platforms that facilitate token offerings will perform a multitude of checks before commencing a sale. After all, if a new digital currency isn't everything it was cracked up to be, the crypto exchange's reputation could be at risk for launching the IEOs.
As well as poring over the white paper
, an IEO platform will examine a number of other factors before giving a blockchain project the green light. Any cryptocurrency exchange worth its salt will begin vetting the team behind the business, put the tech through its paces, uncover unique selling points, assess the tokenomics
and gauge whether there's any demand for the business in the crypto space.
If the exchange platform decides to proceed, investors will have to go through KYC
measures (Know Your Customer and Anti-Money Laundering checks.) Prospective contributors will also be given full transparency about how the token issuers are progressing in hitting their target.
IEO White Paper Requirements
A good white paper should serve to educate potential investors about what problem the project is looking to solve and the solution. It should also include a detailed technical explanation of their product, architecture, and outline of their team and users. Tokenomics
and how the raised funds will be used are also included, alongside the project's development roadmap. The white paper has to be factual, formal and professionally formatted, similar to an academic paper. More importantly, a well written white paper is an excellent marketing content, as it lays out the project's vision and convinces potential investors and developers to come onboard.
Binance IEO Launchpad
Binance launchpad, and the newly introduced launchpool, are platforms in the Binance ecosystem that helps projects bring their tokens to launch. They provide full service advisory service, from pre-launch to to post listing and marketing support. They aim to allow project teams to focus on product development and building, while they provide the initial marketing exposure and user base.
As of August 2021, Binance launchpad has managed to raise over $96M for 48 projects, with over 1.8M participants. The benefits of launching on Binance is the exposure to millions of Binance users worldwide, strong liquidity in multiple pairs, token distribution to wide user base and future synergy with projects under the Binance ecosystem.
Other popular IEO launchpads are Huobi Prime, OKEx Jumpstart, Probit Launchpad, Coinbene and more.
Pros and Cons of Initial Exchange Offerings
For blockchain projects that generate a lot of buzz, IEO platforms can help them raise capital quickly. Just look at BitTorrent, which managed to raise $7 million just 14 minutes after its listing on Binance Launchpad went live (it was later bought by Tron). That said, there are some marked differences from initial public offerings and IEOs you need to be aware of.
Advantages of IEOs:
1. Investors feel more confident. Seeing a digital asset token sale on a trusted crypto exchange can give a project more legitimacy.
2. IEO projects are more likely to run smoothly. As well as overseeing the token offering, IEO platforms can offer marketing and development support.
3. Initial exchange offering investors have a much more user-friendly experience. Compared with ICOs, contributing to blockchain projects is easier because IEO platforms tend to be better designed.
Disadvantages of IEOs:
1. Crypto projects will have to pay listing fees. Start-ups may also have to give an exchange a percentage of the tokens in the form of a commission.
2. Some cryptocurrency exchanges cut corners.
Because of the booming initial exchange offering market, there are platforms that don't do due diligence to a high standard. Be sure to do your own research
, too, before investing in an IEO.
3. Pump and dumps are still a risk.
After a token sale, some digital assets rise in value extremely quickly and then fall dramatically.